Conversable Economist - China's economic growth: pause or trap? Short answer: quit piddling yourself. Personally, I prefer the opinion of the new guy from Bespoke who was on CNBC this morning, who did a good job of pouring cold water on the doomer tale of this year.

Demand for gold jewellery is usually robust in the final quarter as the country celebrates festivals such as Diwali and Dussehra, when buying the metal is considered auspicious. Rural demand for gold accounts for nearly two-thirds of India's total.

"Rural demand" means hundreds of millions of Indian peasants buying 1-gram flakes of gold, to the tune of several hundred tons a year. Compare that to the miniscule size of Wall Street Whitey's selling, or to stupid gold coin purchases by Yankee survivalist goldbugs; then consider how Indian peasants have been buying gold this way for two thousand years and haven't sold any yet.

So what are the advantages of owning a reserve currency? You do get to borrow in your own currency — but then, so do others; again, it’s about reliability rather than a special role. There’s nothing in the data suggesting that you can borrow more cheaply than other safe borrowers.

What you’re left with, basically, is seigniorage: the fact that some people outside your country hold your currency, which means that in effect America gets a zero-interest loan corresponding to the stash of dollar bills — or, mainly $100 bills — held in the hoards of tax evaders, drug dealers, and other friends around the world.

To repeat: US dollar bills are an interest-free loan to the US government. Interesting point.

The balance of payments tracks a country’s international transactions. It comprises the current account, which measures cross-border flows of goods, services, investment income, and transfers; the capital account, which is usually trivial; and the financial account, which records cross-border financial flows. The three components of the balance of payments add up to zero, apart from statistical discrepancies. Putting aside the small capital account and ignoring the statistical discrepancies, this means that the current account balance is exactly matched by the financial account. The intuition is that a country running a current account surplus, with exports greater than imports, is lending to the world to make up the difference. This lending is reflected in net purchases of foreign assets measured in the financial account.

It all adds up to zero. Continued:

In late 2012, the yen started to depreciate with the increased likelihood that the country would expand its asset purchase program. In April 2013, when the policy was actually implemented, commentary similar to that on the ECB program anticipated a “wall of money” flowing out of Japan in search of higher yields and affecting global asset prices. Indeed, analysts worried that emerging countries would have trouble absorbing these flows, leading to asset price bubbles. While asset prices and exchange rates adjusted in Japan and abroad, a surge in outflows never occurred.

[...]

The euro’s fall has been a key channel through which the ECB’s asset purchase policy has affected financial markets in the rest the world. However, the idea that foreign asset prices would be pushed up by a surge in money flowing out of the region, as some observers predicted, runs contrary to balance of payments accounting and asset pricing principles and should be discounted.

Bam! Macroeconomics, bitches!

Economist's View - why wages aren't keeping up. Solow has an interesting take. Seems he likes using the idea of "economic rents" all across the economic spectrum, which is an interesting idea and pretty much invalidates all the theory I learned so far in undergrad:

The suggestion I want to make is that one important reason for the failure of real wages to keep up with productivity is that the division of rent in industry has been shifting against the labor side for several decades. This is a hard hypothesis to test in the absence of direct measurement. But the decay of unions and collective bargaining, the explicit hardening of business attitudes, the popularity of right-to-work laws, and the fact that the wage lag seems to have begun at about the same time as the Reagan presidency all point in the same direction: the share of wages in national value added may have fallen because the social bargaining power of labor has diminished. ...

Now I would like to connect this hypothesis with another change taking place in the labor market..., the casualization of labor. The proportion of part-time workers has been rising... So are the numbers of workers on fixed-term contracts and independent contractors...

Casual workers have little or no effective claim to the rent component of any firm’s value added... If the division of corporate rents has indeed been shifting against labor, an increasingly casual work force will find it very hard to reverse that trend.

"Division of rent in industry" is a meaningless concept in standard economics, because all people make the absolute minimum and every market is perfectly competitive. The real world, however, has little competition, rampant oligopoly, and thus market power everywhere, which means rents everywhere. I like this guy and wish to subscribe to his newsletter.

Market is barfing today on news that OMG CHINA DEVALUED THE YUAN BY 3% IN TWO DAYS THEY MIGHT MAKE IT A WHOLE 5% OMG DEFLATION DEFLATION BRING OUT ALBERT EDWARDS TO TELL US ALL ABOUT THE COMING APOCALYPSE PLEASE HOLD ME.

And of course some people have to chime in at this point with their own bullshit charts.

But here's the money shot for you:

OMG SPX IS ROLLING OVER well no really it has no reason to because the US economy is doing fine if you bother to follow the economic indicators instead of some blogger, and if the 25% USD appreciation we saw last year didn't tank it back then, well a 3% unpeg of the yuan won't either.

Though it's interesting SPY's at the weekly SMA(50), cos the last time it was down there the US was being decimated by that Ebola epidemic that took millions of lives and destroyed their economy oh wait that didn't happen did it and thus the last touch of the weekly SMA(50) was an epic buy opportunity.

And meanwhile:

Despite all the bluster about $SPXEW and OMG biotech and OMG internet stocks, QQQ is still doing fine thanks very much.

Anyway, one bit of good comes from this - chance to buy XIV after a $VIX pop again.

Oh, one other bit of good news that came out of this: I finally deleted Business Insider from my smartphone, after seeing more and more bullshit commentary from clowns like Albert Edwards. It's unbelievable that they got worse after Joe Wiesenthal left, but it's true: they've become Zerohedge without the seething racism.

But if you ask me, the pundits have been at least as gullible as the public, and still are.

For while it’s true that Mr. Trump is, fundamentally, an absurd figure, so are his rivals. If you pay attention to what any one of them is actually saying, as opposed to how he says it, you discover incoherence and extremism every bit as bad as anything Mr. Trump has to offer. And that’s not an accident: Talking nonsense is what you have to do to get anywhere in today’s Republican Party. ...

The point is that while media puff pieces have portrayed Mr. Trump’s rivals as serious men — Jeb the moderate, Rand the original thinker, Marco the face of a new generation — their supposed seriousness is all surface. Judge them by positions as opposed to image, and what you have is a lineup of cranks. And as I said, this is no accident.

It has long been obvious that the conventions of political reporting and political commentary make it almost impossible to say the obvious — namely, that one of our two major parties has gone off the deep end. ...

Until now, however, leading Republicans have generally tried to preserve a facade of respectability, helping the news media to maintain the pretense that it was dealing with a normal political party. What distinguishes Mr. Trump is not so much his positions as it is his lack of interest in maintaining appearances. And it turns out that the party’s base, which demands extremist positions, also prefers those positions delivered straight. Why is anyone surprised?

Over just the past few years the Republicunts have pounded the table demanding gutting the school system, closing universities, deunionization, forced transvaginal ultrasounds, race war, war against Iran, war against Cuba, closures of American mosques, bitcoin, a return to the gold standard and... meh, I dunno, that's just off the top of my head.

Now they have someone leading the pack who says all Mexicans are rapists and drug dealers, and John McCain is a loser because he got captured by the Viet Cong; and as far as the Republicans are concerned he's just as good as the rest of them.

I'm sure that Fox News and neo-Nazi talk radio will eventually backstab Trump and throw their support behind whichever vanilla squib Reince Preibus or Roger Ailes wants for his next president. But for now, Trump is winning because he's actually no more than a straight-talking version of the typical Republican kook.

So what is it that I bring to the table? Fitting the data into the business cycle.

I know of nobody else in the econoblogosphere who so relentlessly parses the economic data into long and short leading indicators, coincident indicators, short and long lagging indicators, and midcycle indicators -- and backs up the categorizations with as much historical data as possible, sometimes going back an entire century.

So when I read somewhere that, e.g., employment will drive consumer spending, or housing, I already know that the historical data shows exactly the reverse: housing drives employment with a 12 month or more lag; consumer spending drives employment with a much shorter lag. I know that, over the longer term, corporate profits lead stock prices, not the other way around. I know that bank lending only turns up once an expansion has started. I know that the trend in hiring, whether up or down, slows and then turns first in comparison with the trend in firing. And so on.

Professor Sarlo highlights “a principal finding of the study” that “individual income inequality has actually declined in Canada” over the study period 1982 – 2010. It is odd to highlight the individual result given that the study argues “that the appropriate recipient unit is the family” and finds that family inequality has increased. But let that pass for the moment, because there are still three red flags.

First, the study’s income definition excludes capital gains but deducts all income taxes, including the income taxes paid on capital gains. Hence the income observation for someone with capital gains will actually be lower than an otherwise identical person with no capital gains. As capital gains mostly occur towards the top end of the income distribution, this reduces the estimate of inequality.

Second, the data source is the Survey of Labour and Income Dynamics (SLID). A 2004 Statistics Canada paper by Frenette, Green and Picot and a 2007 Canadian Journal of Economics (CJE)paper by Frenette, Green and Milligan show that SLID tends to under-represent individuals in the tails of the distribution and hence underestimates inequality. (There is an ungated version of the latter paper here, although I prefer the journal version.) Given it is a direct challenge to its findings, one would expect some comment in the Fraser Institute study, but the paper is not cited.

This connects to the third red flag. The SLID coverage problem means that the top one per cent is underrepresented in the analysis (and does not even get a mention in the paper). Data from Statistics Canada CANSIM table 204-0001 (where I have adjusted for inflation) show why this matters: The average after-tax income of the top one per cent of taxfilers went from about $200 thousand to about $380 thousand between 1982 and 2010, an increase of about 90 per cent. For the top 0.1 per cent the increase was from about $570 thousand to about $1.4 million (about 140 per cent).

In sum, the Fraser Institute study uses a flawed income variable and a data set that lacks coverage in the tails, both in ways that lead to underestimated inequality. And it omits discussion of the top one per cent where significant increases in income inequality have occurred. I noted in my Globe letter that the Fraser Institute study includes this comment: “Too often, improper measures of inequality are used to arrive at results supportive of an advocate’s pre-existing position.” I wondered whether it had happened again.

Well that was so totally unexpected! The Fraser Institute lying? The Fraser Institute omitting conflicting data? The Fraser Institute essentially publishing a completely fabricated neocon puff-piece to support their fascist kleptocratic agenda? Me going completely overboard with sarcasm when you've already got the point? Say it ain't so!

Macro Market Musings - the monetary superpower strikes again. The argument is that because China has pegged the yuan to the dollar, they are now exposed to the USA's upcoming monetary tightening cycle. Which is important. Then again, the Chinese leadership seems fond of using other macroprudential tools, like changing the reserve ratio. Though I guess that could end horribly when taken too far.

Mean Squared Errors - Schauble's ticking clock. Sorry, but it's such an interesting (and snarky) post that I have to quote it in its mostirety:

As we've learned over the past two months, the Troika's biggest stick is the ability (and willingness) of the European Central Bank to cripple the banking system of a Eurozone member state by denying it liquidity.

Now, for a central bank to deliberately destabilize a financial system under its care is, as far as I can tell, unprecedented in the history of modern central banking. And it is unimaginable that the countries composing the Eurozone would have signed up in the first place if the ECB "charter" had explicitly given the central bank the role of "enforcer" of the terms of the growth-and-stability pact (or of pretty much anything else). So the ECB's actions would have been jaw-dropping enough under the original rules of the Eurozone. But the reality is worse.

In 2013, the European Commission designated the ECB to be the authoritative bank regulator for the Eurozone. (1) The ECB is the entity charged with determining whether a particular bank is solvent. It is also charged with the responsibility to take early action to force the resolution of insolvent (and likely-to-become insolvent) banks in such a way as to preserve the smooth functioning of the financial system of the Eurozone and of each member state.

It's hard to avoid the conclusion that, if Greece's banks are in such trouble that the ECB is remotely justified in refusing to provide liquidity support, that the ECB is also, in its role as bank regulator, obliged to shut those banks down and see that they are rapidly restructured and recapitalized.

In other words, the ECB is explicitly required by its own enabling legislation to prevent the state of affairs which it deliberately created in Greece.

So what happens in 2016?

On January 1, the final piece of the Eurozone banking union puzzle falls into place: the responsibility for structuring bank resolution programs will shift from national resolution authorities to a Eurozone-wide Single Resolution Mechanism (SRM), backed by a Single Resolution Fund (SRF). The goal of this institution is to break, one and for all, the link between the solvency of any particular national government and the stability of its banking system. In other words, its purpose is to take away the very leverage the Troika has been using to force concessions from the Greek government -- the threat that "insolvent government = banking system collapse."

[...]

What does this mean for Greece? A couple of things. First, it gives the Greek government a way to force the "are they solvent or aren't they" issue. If the Greek national authorities declare one or more banks to be in danger of insolvency, they can ask the SRM to help create a resolution plan. The ECB could prevent this, but only by explicitly declaring said banks not merely solvent, but safe.

Second, the existence of the SRF, even in its initial "compartmentalized" form, drastically reduces the uncertainty associated with declaring a Greek bank insolvent. Under current rules, it's not 100% clear that the ECB is required to provide financial support to make an orderly resolution feasible. (I would argue that it's strongly implied, but given the ECB's demonstrated willingness to ignore its responsibilities when it come to Greece, I certainly wouldn't rely on it.) The responsibilities of the SRF are indisputable.

So: it is settled EU policy that the insolvency of a particular Eurozone government shall not destabilize the financial system in that or any other Eurozone country. And, to that end, financing bank resolutions is a responsibility of the Eurozone banking system as a whole, not of individual Eurozone governments. Good. But it's hard not to suspect that some in the EU, in writing and blessing these rules, had in mind a silent caveat: "except for Greece."

In fact, it's not hard to imagine what might happen if the first use of the SRF were to recapitalize, say, Alpha Bank. The German press, among others, would take a sudden interest in the SRM and the SRF, and might not be inclined to accept the notion that compulsory payments to a governmental entity are, in some fundamental sense, not "taxes." And somebody, somewhere will accuse the Merkel government (with some justice) of having signed on to a stealth transfer union, which is "bailing out" Greek banks. Hijinks ensue.

How could EU policymakers have convinced themselves that that the SRM would never be applied to Greece? My personal guess would be that it involved the same form of self-deception entailed in all games of "kick the can down the road," the expectation -- born more of wishful thinking than of reason -- that, somehow, these things will work out before the moment of truth arrives.

But now the moment of truth is awfully near.

All of which might help to explain Wolfgang Schäuble's evident desire to push Greece out of the Eurozone as quickly as possible. There's a ticking clock: in five months, it becomes a whole lot harder for the Troika to hold the Greek banking system hostage, and the consequence of trying -- the activation of the SRM to recapitalize insolvent Greek banks -- could have interesting political repercussions in Germany and elsewhere.

But I think we can expect the ECB will indeed explicitly ignore its own legislation when it comes to Greece or democracy or mainstream economics. Which, of course, will pooch the entire reason for an SRM and make peripheral banks a ticking time-bomb again.

Bon Iver is one of many in a lineage of similar-sounding male songwriters. With his sexy beard and flannel shirts revealing just a hint of chest hair, Iver has built quite a fanbase, drawn to his good looks and sultry crooning. Despite his narrow focus on men’s issues, Iver somehow overcomes the limitations of his sex and triumphantly pulls together an anthem for all of us.

and

6. James Blake – “Limit To Your Love.”

Having bubbled under in 2010, this was the year that dubstep pin-up James Blake finally broke. Here Blake, who sometimes even writes his own songs sometimes, covers Feist’s “Limit to Your Love” to great effect. Relying on just a piano, a sparse beat and a cute sub-bass, Blake’s fantastic effort almost makes you forget the original.

and

10. Radiohead – “Lotus Flower”

Thom Yorke is not a very talented singer, but the clear tone of his voice works well enough for his indie-electro records. Over a soundscape clever crafted by his producer, Yorke dances through the videoclip like an ethereal, beguiling pixie.

OK, I'm dense but upon seeing Yorke being called a "pixie" I thought sumfink was oop*. Well, here's the postscript:

Ok, Sady’s pointed out it might not be immediately clear what I’m doing here if you don’t read as much music criticism as we do. So basically, I used a lot of small cut n pastes from actual reviews – using the reviews of men for the women, and vice versa – then finessed to make them artist-appropriate. I wanted to spotlight the way that music criticism minimises women’s achievements through using ”objective” aesthetic criteria that work to privilege male artists as a whole.

upon which you realize fuuuck, that really has been happening, hasn't it?, and the above male artist reviews really do drive home how differently women are treated.

And it is awfully sexist how reviewers treat people like Lana Del Rey. After all, even if you can't stand her you have to admit she's objectively no worse an artist than Thom Yorke.

*- no, actually I thought something was up when I saw Lykke Li being compared to Julia Kristeva and Luce Irigaray. WTF?